#cfa #cfa-level-1 #economics #microeconomics #reading-13-demand-and-supply-analysis-introduction #study-session-4
To continue our example, suppose that the price of gasoline (Px
) is $3 per gallon, per household income (I
) is $50,000, and the price of the average automobile (Py
) is $20,000. Then this function would predict that the per-household weekly demand for gasoline would be 10 gallons: 8.4 − 0.4(3) + 0.06(50) − 0.01(20) = 8.4 − 1.2 + 3 − 0.2 = 10, recalling that income and automobile prices are measured in thousands. Note that the sign on the own-price variable is negative, thus, as the price of gasoline rises, per household weekly consumption would decrease by 0.4 gallons for every dollar increase in gas price. Own-price
is used by economists to underscore that the reference is to the price of a good itself and not the price of some other good.